Chrysler picks Mexico as manufacturing hub

U.S. automaker Chrysler has battled back from insolvency in 2009 to emerge as a major player in the global auto industry, with February sales jumping 13 percent from the year prior. The company announced it will manufacture the Fiat 500 subcompact in Toluca, Mexico.

Italian carmaker Fiat, which owns a 25 percent stake in Chrysler, has utilized Chrysler's presence in North and Central American to grow its presence in the valuable market. Strategically located between the U.S. and South America, Mexico was an ideal location for the manufacturing facility, according to Chrysler executives.

"Mexico is an ideal position for the production of this car because of free trade agreements with neighbors to both the north and the south because of the bridge between NAFTA and Latin America," said Chrysler chief executive Sergio Marchionne. The Toluca facility will be the sole supplier of the Fiat 500 and the Dodge Journey, affirmed Marchionne. Chrysler plans to invest $550 million into the plant and will hire about 600 workers.

Mexican president Felipe Calderon joined Marchionne at a ceremony at the Toluca facility and touted Mexico's skilled workers and rapidly changing infrastructure - both of which attract international companies to the country. Manufacturing has become "an engine of economic growth" in Mexico, Calderon said.

With multiple manufacturing centers in Mexico, Chrysler is hoping it will gain market share in the increasingly lucrative markets in South America, especially Brazil. The Toluca facility will handle a majority of the manufacturing of the vehicles, but Chrysler's executives are determining whether a separate facility in Saltillo could serve as a manufacturing hub of Fiat commercial vehicles, Bloomberg reports.

Mexico is strategically important to Chrysler because cars assembled in the country avoid import tariffs that Latin American countries lob on goods; Brazil, for example, has a 35 percent tax. Chrysler will produce nearly 120,000 Fiat 500 cars each year at the Toluca manufacturing facility, the company said; of those, about 50,000 will be sold in the U.S. and Canada.

In 2010, about 1,200 Fiat 500s were sold in Brazil, according to IHS Automotive. However, by avoiding the 35 percent tax, that number could surge over the next few years, said Joseph ChamaSrour, the president of Chrysler Mexico. "At this time, the project cannot really be sold because Brazil has duty tariffs," ChamaSrour said. Cars produced in Mexico would be priced about 20 percent less than those assembled in Fiat's other international factories.